GDP and GNI are used to measure the value of economic activities in a country.

The level of GDP indicates at which stage of the business cycle the economy is.

The GDP figure is used to determine the country’s economic growth rate. Expansion and contraction of economic activities are indicated as a percentage increase or decrease. A change in GDP is the only way to determine how the economy is performing.

The contributions of the primary, secondary and tertiary sectors can be derived from the GDP figure:

• If the primary sector is the largest, the economy has a low level of development.
• If the secondary sector is the largest, the economy has an average level of development.
• If the tertiary sector is the largest, it indicates a developed economy.

The GDP and GNI figures indicate the material standard of living of the members of the economy. If GDP is divided by the total number of inhabitants in the country, it is called per capita income (per capita GDP), which is a good indicator of the standard of living in the country.

By comparing a country’s GDP and GNI figures with those of other countries, inferences can be made about the economic growth and welfare of one country compared to those of other countries. The different countries’ GDP and GNI figures are converted to US Dollars to make comparison possible. These statistics are published by international organisations such as the World Bank and the United Nations.

There is also criticism of GDP as a measure of development. For more about that, check out this conversation with Diane Coyle and Rebecca Riley.